Now that we have the basic warnings out of the way, we can move on to a simple guide and tips for those just starting out in the forex arena. Forex trading in itself requires a cool head, ample analysis and emotionless trading. All currency moves up and down on a global scale, if you let yourself get carried away in emotion, you will easily lose all you have invested.
To start, work without the least amount of currency pairs, one or two is best until you become a more experienced trader. It is easy to see potential in all of pair’s available, currency properties are determined not only by the strength of your countries funds, but also by social and political events of the currencies home country and deep analysis of each is required before trading.
As a new trader, starting out with Euro/Yen and Euro/Dollar are the best way to easily track developments in terms that are easy to follow for a new trader. There are other pairs to consider, and of the world’s currencies, there are 18 that are deemed significant. Of these pairs, they have one thing in common, and that is their volatility. This is good and bad, you can make huge profits, but you can also incur equally large losses.
When dealing with a trade, look for the larger time picture to get a better feel about the immediate trend. For example, if you used a 20 minute chart for analysis initially, pull up the last hour for a more complete trend picture. If you still are unable to find a good picture of the trend, opt for an even larger time frame, such as a week or a month.
Emotion in trading can’t be avoided, however, as a beginner its important to resist the urge to trade wildly when you have success in a certain time frame with a certain trade scale. Nonsensical overreaction can easily cloud your judgment and lead to loosing the gains you just acquired.
Don’t feel pressure to make a trade, wait until the time feels right to you. Some people have the ability to wait for hours and some don’t. Each person has their own systems and analysis of the trades. If you feel unsure, stand out and skip the trade until the next opportunity arises. If you are holing a loosing trade, don’t get sucked into the notion that it will get better, sometimes it does and sometimes it doesn’t, if the amount is minimal, hold for a short time and then sell. If your trade amount is very high, it is always a good idea to cut your losses before they increase. No matter what, don’t add positions to a trade that’s already loosing. Sometimes the best thing to do is quit trading for the day and start fresh tomorrow.
Manage your risk intelligently. Risk no more than 3% of your overall trading account. A good trader is able to survive even when the conditions in the trading market are not favorable. A incompetent trader, will continuously make high risk trades and end up with a negative account after a few loosing trades. Not two traders will make the same amount on the same trade, loosing half of your account on one trade will mean that you have to make double on your next trade just to break even, this is a dangerous cycle to fall into that’s often very hard to break. Managing your money and your trades smartly helps limit the risk of entering the cycle.
A few good things to keep in mind; if you feel overwhelmed, take a break. Data overload can lead to costly mistakes. Take a five minute walk outside to clear your head and then retrace your last few steps. This will assure that your trading decisions weren’t made under duress.
Pay close attention to trade times, many markets open at different times of the day, and depending on where you are located initially, your trade may be affected both positively and negatively. There are a few markets that overlap, during those times, the market is very crowded and the highest amount of trade work is being handled.
When you are just starting out, things can seem complicated and that may lead you to look for an easy way out. There are no guarantees in stock trading or forex trading; any one that tries to sell you a trick or secret that assures success is a scam.
Demonstration accounts exist for a reason, forex is no place to gamble, that’s best left for the casino. Forex is a place for serious traders who want to make an investment and earn a return though analysis. Use a demo account to acclimate yourself with the system of trading and the study of the market analysis. That way when you start using real money, there is a lesser chance of loosing it.
A good broker is as important as a good computer when it comes to forex. Not all brokers are created equal; take your time to find out the policies and features of each brokerage until you find one that bet fits your trading style. When you do start trading, don’t go against the trend.
Patience is really the most important advice for a new foreign exchange trader. A lot of people jump in thinking they will get rich over night. You should go into trading with the expectation of earning your profit slowly over a long period. Not only will this mantra help you stick to your money management goals, but it will also help you to make good decisions that will have a positive effect in the long run.